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[2025] WASC 48
General information, not legal advice.
Supreme Court of WA
2025-02-20
Lundberg J
Original judgment source is linked above.
B. An overview of the action The instruments relevant to the action
7.2 The Guarantors and the Lessee jointly and severally agree to charge any other land in which they have a partial or full interest as owner both now and at any time in the future in favour of the Lessor as security for repayment of any money due and payable to the Lessor under the lease. If a Lessee is in default of its obligations pursuant to the lease, the Guarantor and the Lessee agree that the Lessor will be entitled to register an absolute caveat against their land until the default is remedied.
7.1 In consideration of the Lessor accepting the Lessee's Offer To Lease at the request of the Guarantors, the Guarantors named in Item 1 of the First Schedule (jointly and severally if more than one) unconditionally guarantee the due and punctual payment to the Lessor and performance of the Lessee's obligations pursuant to this Contract and will indemnify the Lessor and keep the Lessor indemnified in respect of all monies which the Lessee becomes liable to pay to the Lessor and the performance of all term, covenants, conditions and stipulations pursuant to this Contract
20.1 Upon acceptance of this Offer the Lessee authorises the Agent to instruct the Lessor's solicitors to prepare a Lease agreement in the form used by the Lessor and incorporating the terms and conditions of this Offer.
20.2 The Lessor or the Lessor's Agent shall provide to the Lessee a draft of the Lease ("Draft Lease") within seven (7) days of Acceptance of this Contract.
20.3 The Lessee or their representative must within seven (7) days of receipt of the Draft Lease provide in writing any requested amendments to the terms and conditions of the Draft Lease, except for variations to the terms, conditions and Special Conditions agreed in this Contract, to the Lessor to the Lessor's Agent. If the Lessee does not provide any requested amendments to the Draft Lease within seven (7) days of being provided the Draft Lease then it shall be deemed that the Lease is acceptable to the Lessee and the Lessor or the Lessor's Agent will provide the Lease document for execution by the Lessee and Guarantor/s (if any).
20.4 The Lessor is under no obligation to agree to any requested variations to the Draft Lease.
20.5 The Lessee hereby agrees to ensure that the Lessee and the Guarantor/s (if any) will execute the Lease and return it to the Lessor or the Lessor's Agent along with payment of the Lessor's reasonable solicitor's cost for the Lease preparation within seven (7) days of receipt of the Lease and if the Lease is not so returned then the Lessee will be in default of this Contract and the Lessor or the Lessor's Agent may immediately terminate the Lease by written notice and the Lessee will have no claim against the Lessor or the Lessor's agents for damages.
20.6 The Lessee must, prior to taking possession of the Premises, execute a Lease which includes the terms contained in the First Schedule to this offer and any other terms and conditions which the Lessor's solicitors may reasonably deem appropriate or necessary. (emphasis added)
22.1 It is agreed that once duly signed by the respective parties this document is a binding agreement to enter into a lease on the terms and conditions in this Offer.
22.2 Until a binding lease is executed, this offer to lease will be a binding document against the Lessee.
24.1 In the event of a draft lease being appended to this Contract or provided to the Lessee subsequent to the Acceptance of this Contract, the covenants of the draft lease take priority over the terms of this Contract with the exception of those principle [sic] terms and conditions which are physically entered upon this Contract.
20.3 The parties agree that this Lease records the entire agreement between them and this Lease supersedes any express or implied representation given or made by the Landlord prior to this Lease becoming enforceable by any party.
D. The parties' submissions Plaintiff's submissions
[31] There is a sharp differentiation of the Charging Clause from the other terms of the Contract to Lease in that while the Charge arose upon execution of the Contract to Lease so as to apply to future indebtedness under the formal lease, none of the other terms of the Contract to Lease had any effect until such time as the Lease was executed. It follows from this distinction that while it makes sense for the other terms to take effect as lease terms by being restated in the formal lease, this is not apposite for the Equitable Charge which has already taken effect and secures such indebtedness as might arise under the subsequently executed formal lease.
[32] While the Contract to Lease contains a guarantee, this had to be restated in the Lease because of the wording of clause 7.1 of the Contract to Lease which provides for a guarantee of payment and other obligations 'under this Contract'. In contrast, the Charging Clause refers to defaults pursuant to and under the formal lease. Hence, restatement of the guarantee, unlike the Charging Clause, was required to be included in the Lease for the guarantee to take effect.
[33] The upshot is that the Replication Requirement [explained in par 24 of the submissions] applies to all of the terms of the Contract to Lease save for the Charging Clause.
...a statement of intention to agree to charge land in future if a formal lease was later concluded (creating payment obligations under a lease), and in the formal lease a charging provision was included as security for those payment obligations.
[13] An equitable charge (if one had arisen immediately under cl 7.2 of the Contract to Lease) was not part of the completed entire agreement in the later Lease.
[14] That outcome is the result of: (a) merger of the executory agreement to lease in the Contract to Lease with the later deed of Lease, (b) the entire agreement clause at clause 20.3 of the Lease, (c) the absence of a charging provision in the Lease and (d) cl 24.1 of the Contract to Lease providing that the covenants of the draft lease take priority over the terms of this Contract. There are other terms and conditions from the Contract to Lease that appear in the Lease, but not a charging provision.
[39] The proper construction of a commercial contract is to be determined objectively having regard to its text, context and purpose or objects. The provisions of the contract are to be understood objectively by reference to what a reasonable businessperson would have understood them to mean. The hypothetical reasonable businessperson must be placed in the position of the parties. The court considers from that perspective the circumstances surrounding the contract and the commercial purpose or objects sought to be achieved by it. See Electricity Generation Corporation v Woodside Energy Ltd; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd; Rinehart v Hancock Prospecting Pty Ltd; Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd.
[40] In Electricity Generation Corporation [35], French CJ, Hayne, Crennan and Kiefel JJ made these observations in relation to ascertaining what the hypothetical reasonable businessperson would have understood by the terms of a commercial contract:
[I]t will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'. (footnotes omitted)
See also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd; Simic v New South Wales Land and Housing Corp.
[41] A commercial contract must be construed as a whole. The words of a clause in the contract are to be given the most appropriate meaning which they can legitimately bear. A court must have regard to all of the provisions of the contract with a view to achieving harmony among them. If more than one construction of a clause is open having regard to the text, context and purpose or objects of the contract as a whole, the court will prefer a construction that will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust. See Australian Broadcasting Commission v Australasian Performing Right Association Ltd; Zhu v Treasurer of the State of New South Wales; Electricity Generation Corporation [35].
[42] In Fitzgerald v Masters, Dixon CJ and Fullagar J said, '[w]ords may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency'. See also Adams v Lambert; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq).
[43] Where a word or an expression is defined in a commercial contract the court will give effect to the definition. The proper course is to read the text of the definition into the relevant clause and then to construe the relevant clause having regard to the contract as a whole. Ordinarily, the purpose of a definition in a commercial contract is to attribute the meaning agreed upon by the parties to the relevant word or expression and to avoid unnecessary and lengthy repetition of the text of the definition in the contract. See, generally, Halford v Price; Kelly v The Queen.
[44] The surrounding circumstances known to the parties may be used in construing a commercial contract. However, the subjective intentions of the parties may not be used in construing the contract. See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd; Victoria v Tatts Group Ltd; Cherry v Steele-Park. (footnotes and citations omitted)
[22] ...For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists. In the present case, if the effect of what occurred on 30 August 1991 had been to rescind the agreement of 31 May 1991, then that would go a long way towards providing an answer to the appellant's argument that the assignment which occurred on 30 August was pursuant to the agreement of 31 May, with whatever that entails for the application of Pt IIIA of the Act.
[23] In Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93 at 44 Taylor J said:
"It is firmly established by a long line of cases ... that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement."
[24] That passage was cited with approval by Wilson and Dawson JJ in Dan v Barclays Australia Ltd (1983) 57 ALJR 442 at 448-449; 46 ALR 437 at 448. It accords with principle and with authority (eg Morris v Baron and Company [1918] AC 1; British and Beningtons, Ld v N W Cachar Tea Co & Ors [1923] AC 48; United Dominions Corporation (Jamaica) Ltd v Shoucair [1969] 1 AC 340).
[32] The requirements for the creation of an equitable charge are:
(a) an intention to create a charge;
(b) if over land, the presence of writing;
(c) the existence of definite ascertainable property, including future property, over which it is contemplated that the charge will exist; and
(d) where consideration is necessary, consideration
2.6A The Guarantor will charge in favour of CHH all estates and interest in any land and any other assets whether tangible in [sic] intangible in which they now have any legal or beneficial interest or in which they later acquire any such interest, with payment of all monies owed by the customer and agree upon request, to execute a registrable instrument transferring to CHH the Guarantors estate and interest by way of security. (emphasis added)
[56] The liquidator submits that an intention to create an immediate charge is not created with the word 'will', as that is an agreement to do something in the future (in this case, obligation to charge the relevant assets) and that an agreement to do something in the future does not create a present charge, and does not evidence a clear intention to create a charge
[57] In response, Mr Gronow contends that the clause is similar to that in question in Re Roberts; Ex parte Australian Telecom Employees Credit Cooperative v Taylor, where use of 'shall' was considered sufficient to create a charge. Mr Gronow submits 'shall' is of immaterial difference to 'will', as both are terms of compulsion and are expressions of intention and obligation. Mr Gronow says that 'will' imposes a present and future obligation.
[58] Mr Gronow submitted that the present clause is similar to that in Avco v White, where Gillard J held that the contract was sufficient in that it disclosed an intention that the property owned constituted security for the loan and therefore Avco had an equitable charge over the property.
[59] In my opinion, 'will charge' conveys the manifestation by Mr David of an immediate intention to charge and does not involve a promise to charge in the future. The fact that the charge may not be enlivened until credit was extended to Mr David by CHH does not mean that Mr David did not manifest the present intention to create a charge.
As to the question of consideration, Rogers J. was clearly right in holding that the mere "readiness ... to entertain ... a request" was no consideration and their Lordships have found themselves unable to accept the reasoning of McHugh J.A. on this point. It is, however, entirely clear that although the mere promise to consider or entertain a request cannot of itself constitute a valuable consideration for the sureties' promise, the actual advance of money in response to a request does provide a consideration for the sureties' liability. Leaving aside for the moment the question, upon which both Rogers J. and McHugh J.A. agreed, of what type of request is, as a matter of construction, sufficient to give rise to a guaranteed liability, Mr Bennett has submitted that the respondent's claim founders immediately on the rock of consideration for there was, he submits, no evidence of any request made either by the appellants or by Industries subsequent to the date of the guarantee for the provision of finance for Products. Insofar as there was any request made by Industries, it took place prior to the execution of the guarantee and was therefore a past consideration.
Their Lordships find themselves unable to accept this submission. The consideration is not to be found in the making of the request but in the accession to it and there is, in their Lordships' view, no reason why an advance of money pursuant to a request made contemporaneously with or prior to the guarantee should not constitute a good consideration for the sureties' promise to pay.
I think it is very important, according to my view of the law of contracts, both at Common Law and in Equity, that if parties have made an executory contract which is to be carried out by a deed afterwards executed, the real completed contract between the parties is to be found in the deed, and that you have no right whatever to look at the contract, although it is recited in the deed, except for the purpose of construing the deed itself. You have no right to look at the contract either for the purpose of enlarging or diminishing or modifying the contract which is to be found in the deed itself.
I entirely agree with my Lord that where there is a preliminary contract in words which is afterwards reduced into writing, or where there is a preliminary contract in writing which is afterwards reduced into a deed, the rights of the parties are governed in the first case entirely by the writing, and in the second case entirely by the deed; and if there be any different between the words and the written document in the first case, or between the written agreement and the deed in the other case, the rights of the parties are entirely governed by the superior document and by the governing part of that document.
[97] This duality about the contracts for sale is significant. The obligation on the part of Rialto to convey title to the identified lot in the unregistered strata plan could not continue beyond completion, so that the obligations as to title undertaken by Rialto in the contracts of sale must be regarded as merging in the transfer, if not at the time of completion, then no later than the time of its being registered: Australian Conference Association v Carter [1988] ANZ ConvR 516; (1988) NSW ConvR 55-435; BC8700959 at 17 (Powell J).
[98] The same, however, cannot be said of the secondary obligation undertaken. Whilst the parties made no express statement that the good workmanship obligations did not merge on completion, the nature of the subject matter of the obligations is such that one can readily conclude that it was intended that these special conditions should survive completion. As the respondents correctly submitted, performance of Rialto's covenant as to good workmanship is not something which the purchaser could investigate prior to completion, like investigating the vendor's title.
[94] It is well established that the right to enforce a vendor's obligation to construct a building on the property in the manner set out in the contract, is a right 'collateral' to the conveyance which does not merge on completion. This is because the nature of the subject matter of the right is one that the parties did not intend to merge in the transfer on completion.
There are examples of contractual provisions concerning which the parties have made no express statement that the provision is not to merge on completion, but from the nature of the subject matter the court has been able to conclude that it was not intended that the clause should merge on completion: Pallos v Munro (1970) 92 WN (NSW) 797 (vendor's covenant to comply with council notices survives completion); Palmer v Johnson [1884] UKLawRpKQB 92; (1884) 13 QBD 351 (purchaser's right to compensation surviving transfer); Gaut v Patterson [1931] NSWStRp 40; (1931) 31 SR (NSW) 612 (vendor's covenant to build house in workmanlike manner survives completion); Hancock v BW Brazier (Anerley) Ltd [1966] 1 WLR 1317 (same as Gaut); Lawrence v Cassel [1930] 2 KB 83 (same as Gaut); Hissett v Reading Roofing Co Ltd [1969] 1 WLR 1757 (vendor's covenant to give vacant possession survives completion).
The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing [sic - thrashing] through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence as is suggested in Chitty on Contract 28th ed Vol 1 para 12-102: it is to denude what would otherwise constitute a collateral warranty of legal effect.
The extent of integration achieved by an express entire agreement clause (or similar provision) is always a matter of intention to be determined by construction. There are two issues [the second is not presently relevant].
First, does the document integrate the entire contract or only part of it? This will necessarily depend on the wording of the clause. Although it is in theory possible to have an entire agreement clause which applies to part only of the contract, this must in practice be rare. Accordingly, the effect of such provisions will usually be to integrate the whole contract in the document. On the other hand, where the bargain comprises more than one contract, it is quite possible that the intention of the parties is merely to integrate that aspect of the bargain dealt with in the document in which the entire agreement clause is contained.
Whether the charging clause was effective to create the Pleaded Equitable Charge?
Whether the Pleaded Equitable Charge continued following execution of the Lease?
The Landlord LEASES the Premises to the Tenant for the Term SUBJECT to the payment of the Rent to the Landlord and SUBJECT to the other terms and conditions in this deed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
[1] The defendants accept that, if the equitable charge is established, then the plaintiff was a secured creditor for the purposes of s 58(5) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). That is, the defendants' bankruptcy will not operate to extinguish the plaintiff's rights in rem against their property.
[2] Plaintiff's submissions dated 30 January 2025 (PS) [1].
[3] Exhibit P1; and Amended Statement of Claim dated 10 October 2024 (ASOC) [3].
[5] PS [4]; and Defendants' submissions dated 3 February 2025 (DS) [4].
[8] ASOC [1]; Amended Defence dated 24 October 2024 (AD) [1].
[12] Item 1 and Item 2 of the First Schedule to the Contract to Lease.
[17] In accordance with s 9 of the Property Law Act 1969 (WA) and s 127 of the Corporations Act 2001 (Cth).
[20] ASOC [11] - [13] and [17]; and AD [8] - [10] and [13].
[23] ASOC [15] and [16]; and AD [12].
[36] Vango Mining Limited v Zuleika Gold Limited [2024] WASCA 54 [39] - [44] (Buss P and Seaward J).
[37] JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112 [139] (Buss P and Vaughan JA) (JKC Australia).
[39] EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78 [104] (Buss JA, as his Honour then was, with Owen and Newnes JJA agreeing).
[40] Commissioner of Taxation of the Commonwealth v Sara Lee Household & Body Care (Australia) Pty Limited [2000] HCA 35; (2000) 201 CLR 520.
[41] Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93.
[42] See the references cited in Carter Holt Harvey Woodproducts (Australia) Pty Ltd v David [2017] VSC 499 [40] (Robson J) (Carter Holt Harvey).
[43] Morris Finance Ltd v Brown [2017] FCAFC 97 [38] (Beach, Markovic and Moshinsky JJ).
[44] Morris Finance Ltd v Brown [38].
[45] Morris Finance Ltd v Commonwealth Bank of Australia [2017] VSC 260.
[46] Morris Finance Ltd v Commonwealth Bank of Australia [32].
[47] Carter Holt Harvey [40] (Robson J).
[48] Carter Holt Harvey [45] - [46] (Robson J); Morris Finance Ltd v Commonwealth Bank of Australia [31] and [32] (Derham AsJ).
[49] Carter Holt Harvey Woodproducts (Australia) Pty Ltd v David [65] and [69].
[50] Coghlan v SH Loch (Australia) Ltd (1987) 61 ALJR 289 (Privy Council) (Coghlan).
[51] Coghlan v SH Loch (Australia) Ltd (292).
[52] Carter Holt Harvey Woodproducts (Australia) Pty Ltd v David [40].
[53] Leggott v Barrett [1880] UKLawRpCh 229; (1880) 15 Ch D 306 (James LJ).
[54] Knight Sugar Co. Ltd. v. Alberta Railway & Irrigation Co [1938] 1 All ER 266, 269 (Lord Russell of Killowen, speaking for the Privy Council) (Knight Sugar).
[56] Leggott v Barrett [1880] UKLawRpCh 229; (1880) 15 Ch D 306.
[57] In re Dicconson (A Lunatic) (1880) 15 Ch D 16, a case concerning the sale of a lunatic's property in Wigan under the Lunacy Regulation Act 1858 (16 & 17 Vict. c.70).
[63] Sekisui Rib Loc Australia Pty Ltd v Rocla Pty Ltd [2012] SASCFC 21 [57] - [61] (Sulan J, with David and Peek JJ agreeing) (Sekisui Rib Loc).
[64] Svanosio v McNamara and Another [1956] HCA 55; (1956) 96 CLR 186, 206 (McTiernan, Williams and Webb JJ).
[65] Twidale v Bradley [1990] 2 Qd R 464.
[69] Rialto Sports Pty Limited v Cancer Care Associates Pty Limited [2022] NSWCA 146 (Rialto Sports).
[70] Rialto Sports [90] (Gleeson JA).
[71] Rialto Sports [96] (Gleeson JA).
[72] Rialto Sports [96] (Gleeson JA).
[73] Zaccardi v Caunt [2008] NSWCA 202 [35] (Campbell JA, Allsop P and Barr J agreeing).
[74] Players Pty Ltd v Clone Pty Ltd [2006] SASC 118 (Doyle CJ, Sulan and Layton JJ agreeing).
[75] Players Pty Ltd v Clone Pty Ltd [3] and [125].
[76] E Peden and J W Carter, Entire Agreement - and Similar - Clauses (2007) 22 Journal of Contract Law 1.
[77] Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24; [2019] AC 119 [14] (Lord Sumption), referring also to 'no oral modification' clauses.
[78] MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152, 156 (Davies JA). See also McPherson JA at 154 (Moynihan J agreeing).
[79] Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833 [440] (Allsop J, as his Honour then was).
[80] MacDonald v Shinko Australia Pty Ltd.
[81] Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd.
[82] Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 89 NSWLR 633 [130] (Leeming JA, Ward and Emmett JJA agreeing).
[83] I M Jackman, Some judicial fallacies concerning entire agreement clauses (2015) 89 ALJ 791.
[84] Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd's Rep 611.
[85] Inntrepreneur Pub Co (GL) v East Crown Ltd [7].
[86] E Peden and J W Carter, Entire Agreement - and Similar - Clauses (2007) 22 Journal of Contract Law 1, 6.
[87] Meaning the formal lease to be executed in the future.
[88] Lease, page 1. See also the recitals, which refer to 'the terms and conditions contained in this Lease'.
[89] Donau Pty Ltd v ASC AWD Shibuilder Pty Ltd [2019] NSWCA 185; (2019) 101 NSWLR 679 [58] (Bell P, Basten JA agreeing).
(1957) 98 CLR 93
(1983) 57 ALJR 442
(1956) 96 CLR 186
(1987) 61 ALJR 289
(2014) 89 NSWLR 633
(2019) 101 NSWLR 679
(2000) 201 CLR 520